01—Abstract
Summary
Summary of the 10-K filed February 27, 2013. Cited figures are marked; the original filing is the authoritative source.
Wisconsin Energy Corporation, now WEC Energy Group, Inc., reported 2012 net income of $546.3 milliona, or $2.35 diluted earnings per share from continuing operations, up from $2.18 in 2011.
Total operating revenues were $4,246.4 millionb, down from $4,486.4 million in 2011, while operating income rose to $1,000.3 million from $887.3 million. The utility energy segment contributed $647.7 million of operating income and the non-utility energy segment $358.8 million. Lower other operation and maintenance expense, largely from a one-year suspension of $148 million of regulatory asset amortization under the 2012 Wisconsin rate case, drove much of the improvement.
Electric sales were flat, and the company guided to 0.5% to 1.0% annual retail kWh growth over the next five years. The company's capital program and balance sheet are central to the investor case. Capital expenditures were $707.0 millionc in 2012 and are estimated at $692.7 million for 2013.
The company expects to invest approximately $2.0 billiond in its regulated utility business over the next three years, including a biomass plant in Rothschild and conversion of the Valley Power Plant from coal to natural gas. Total assets were $14,285.0 million at year-end, and the debt-to-total-capitalization ratio was 55.8%. Cash from operations rose to $1,173.9 million, and the company did not make federal income tax payments for 2012 due to bonus depreciation.
The filing also highlights regulatory and environmental exposure. The Oak Creek AQCS project was completed at a final cost of approximately $740 million, and the company faces uncertainty from the vacated Cross-State Air Pollution Rule, potential greenhouse gas regulation, and a proposed rule that could classify coal combustion products as hazardous waste. The dividend was raised to $0.34 per quarter in January 2013, with a new policy targeting a 65-70% payout ratio in 2017.
02—Key points
Key Highlights
- Net income of $546.3 million in 2012, compared with $526.2 million in 2011 including discontinued operations; diluted EPS from continuing operations of $2.35 versus $2.18 in 2011.
- Total operating revenues of $4,246.4 million, down from $4,486.4 million; operating income increased to $1,000.3 million from $887.3 million.
- Utility energy segment operating income of $647.7 million, supported by lower other operation and maintenance expense and the one-year suspension of $148 million in regulatory asset amortization.
- Capital expenditures of $707.0 million in 2012, with $692.7 million estimated for 2013 and about $2.0 billion expected in utility investment over the next three years.
- Quarterly dividend increased to $0.34 per share effective with the first quarter 2013 payment, with a policy targeting a 65-70% payout ratio in 2017.
- Debt-to-total-capitalization ratio of 55.8% at year-end 2012, with $1.2 billion of available undrawn bank back-up credit lines.
- Oak Creek AQCS project completed at a final cost of approximately $740 million, while the vacated CSAPR and pending greenhouse gas and coal ash rules create regulatory uncertainty.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 27, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $4.25B$4.49B | −5.3% |
| Operating Income | $1.00B$887.30M | +12.7% |
| Interest Expense | $248.20M$235.80M | +5.3% |
| Net Income | $546.30M$526.20M | +3.8% |
| EPS (Basic) | $2.37$2.26 | +4.9% |
| EPS (Diluted) | $2.35$2.24 | +4.9% |
| Shares Outstanding (Basic) | 230.20M232.60M | −1.0% |
| Shares Outstanding (Diluted) | 232.80M235.40M | −1.1% |
05—Questions
Frequently Asked Questions
How did earnings change in 2012?
Net income was $546.3 million in 2012, compared with $526.2 million in 2011. Diluted EPS from continuing operations rose to $2.35 from $2.18. Operating income increased to $1,000.3 million from $887.3 million, mainly due to lower other operation and maintenance expense and lower fuel and purchased power costs.
Why did revenues decline while operating income increased?
Total operating revenues fell to $4,246.4 million from $4,486.4 million, largely because natural gas costs declined and gas revenues dropped with warmer winter weather. Operating income improved because other operation and maintenance expense decreased to $1,116.1 million from $1,256.8 million, reflecting the one-year suspension of $148 million of regulatory asset amortization.
What major capital investments does the company plan?
Capital expenditures were $707.0 million in 2012 and are estimated at $692.7 million for 2013, $630.8 million for 2014 and $778.1 million for 2015. The company expects to invest about $2.0 billion in its regulated utility over three years, including a 50 MW biomass plant targeted for completion by the end of 2013 and a Valley Power Plant conversion to natural gas at an expected cost of $60 million to $65 million.
What is the dividend outlook?
On January 17, 2013, the Board increased the quarterly dividend to $0.34 per share, which would result in annual dividends of $1.36 per share. The Board also approved a policy that targets a payout ratio trending to 65-70% in 2017, after affirming a 60% payout ratio target for 2014.
What regulatory and environmental risks could affect results?
The D.C. Circuit vacated the Cross-State Air Pollution Rule, leaving substantial uncertainty about future capital needs. The EPA is expected to address greenhouse gas performance standards for existing units in 2013, and a proposed rule could classify coal combustion products as hazardous waste, which could affect the company's ash utilization program. The company also faces a WDNR referral to the Wisconsin Department of Justice over the Oak Creek bluff collapse and an administrative order that keeps Paris Generating Station Units 1 and 4 out of service until at least 2014.
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